Coronavirus- Initial Regulatory Responses

March 20, 2020

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As the industry prepares to deal with the unprecedented and rapidly changing problems posed by the COVID-19 pandemic, a number of regulators have taken action.

ESMA

The European Securities and Markets Authority (ESMA) has taken measures to relieve the reporting burden on counterparties that are subject to the Securities Finance Transactions Regulation (SFTR). The 13 April 2020 start date which on which credit institutions, investment firms and relevant third country entities were required to start reporting has been delayed until 13 July 2020.

CFTC

The CFTC has unanimously ratified its earlier decision to implement the BCBS IM mitigation. Although, somewhat confusingly presented as a COVID-19 measure, the mitigation contains no new elements:

New Phase 5 phase in: Target institutions > $50bn

New Phase 6 phase in: Target institutions > than $8 bn

The CFTC’s Office of Chief Economist estimates that these relationships represent approximately three percent of the total average of uncleared swaps, and it is the consensus of the CFTC that this extension will have a limited impact on the systemic risk mitigation benefits of the IM requirements.

Dan Berkovitz, CFTC commissioner, also highlighted that prudential banking regulators in the US are considering adopting a margin rule deadline extension that is very similar to the CFTC final rule, and that there is no reason to believe that they the proposal will be rejected. This ratification is no surprise. However, given the timing, the CFTC are at least in their own estimation ‘responding swiftly to changing conditions with practical, targeted relief’.

AMF, CONSOB and CNMV

Earlier this week, multiple authorities (such as the French AMF, the Italian CONSOB and the Spanish CNMV) took action to temporarily ban short selling of certain products.

	Transactions	Duration	Of Note
AMF (Autorité Des Marches Financiers)	Where the position involves a share admitted to a trading on a trading venue in France and the share falls under the jurisdiction of the AMF	18 March 2020 to the end of trading on 16 April 2020
CNMV	Shares listed in Spanish regulated markets and MTFs	Till 17 April 2020
CONSOB	Shares traded on the Italian MTA regulated market, and all related instruments relevant for the calculation of the net short position	18 March 2020 to the close of trading on 18 June 2020.	Investors holding a net short position in a restricted share through expiring derivatives are allowed to roll it forward, on condition that by doing so their position is not increased. (see updated FAQs)

ESMA also issued Opinions to demonstrate that they agreed with these temporary bans.

FCA

The FCA issued a general statement regarding COVID-19, reassuring firms that they will determine whether it would be possible to delay or postpone activity deemed not crucial to consumer protection. Closing dates for responses to open consultation papers and Calls for Input have been extended until 1 October 2020. The FCA also issued guidance on: insurance products, unsecured debt products, market trading and reporting and operational resilience. In general, firms are expected to continue to honour their reporting obligations wherever possible, and inform the FCA in cases where they feel that they might encounter difficulties in doing so.

The decisions and statements noted above are initial responses to a crisis that is developing too fast for clarity. While the implementation of large and complex projects such as IM and Libor transition are likely to be affected; the FCA have clarified that they are not planning to adapt any timescales, and firms should make every effort to continue as normal.

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